Whether you’re building your first home or your third, there are many factors to consider when you’re looking at a home construction loan. Are you going at it alone or contracting a builder? What happens if you go over budget? What’s your timeline?
Let’s consider the top three things you might not know about GreenStone’s home construction loans.
1) GreenStone offers financing for both fully contracted and “do it yourself” (DIY) homes.
This means people are free to act as their own general contractor instead of hiring a licensed builder.If someone is skilled in the trades and has the knowledge and ability to tackle a construction project, GreenStone can provide financing that allows this flexible financing that complements their lifestyle. In this case, the borrower would provide the sworn statement for the outline of costs, plans, specifications, sworn statement for draws, manage the draw process, sign the construction agreement, and get the appropriate paperwork through the process. Many lenders will not finance DIY projects. More than half of GreenStone’s construction loans are DIY. We have the expertise to help our members make their dream a reality on their own terms.
2) An overrun budget is required for construction loans to protect our members.
At GreenStone, we build in a 10% cushion into all construction loan budgets. Given economic volatility and various other factors, an overrun budget is a critical part of a construction loan. Our members want to see their home complete. We want to make sure there’s enough money to finish every project.On a $300,000 loan, our customers budget a $30,000 overrun. If by chance the project stays on budget, after the members have completed construction and received the certificate of occupancy, we can then reduce the loan amount by the unused $30,000 and recalculate the loan based on the principal and interest payment. Customers also have the option to use that $30,000 to reimburse themselves for the cash they brought into the project or add to the initial plan. From adding curb appeal through an unexpected landscaping project to adding upgrades the sky is the limit.
Projects don’t always go as planned. That’s why we also require DIY home construction labor expenses to be accounted for up front. If a member is injured and can’t do the planned work themselves, the labor expenses allow them the ability to hire a subcontractor. Part of GreenStone’s job is to help protect our members and making sure there are adequate funds to complete the project is part of that support.
3) GreenStone construction loans allow 12 months for project completion.
During that timeline, members are responsible for interest-only payments on what is drawn.For instance, if you have a loan for $200,000, you’re not paying that principal and interest payment at closing, you’re paying interest only on what’s been used during the 12-month timeline to build.
For a variable rate option, your interest rate varies during the home construction project as interest rates change. Once construction is finished, your loan will convert to a fixed rate mortgage. This conversion does not require a refinance or second closing.
If you choose a fixed rate, your loan will be locked into a fixed interest rate during the construction period, and that rate remains fixed at the same rate for the life of the mortgage. During the construction period, you will make interest-only payments on what has been disbursed at the time of the billing. You will have six, nine, or 12 months, depending on your loan product, to complete construction before principal and interest payments start.
As an added bonus, GreenStone commonly works with customers who finance vacant land, and then at a later time finance their new construction. We want to remain your rural lender, regardless of where life takes you. To learn more about construction loans, click here.
